Every enterprise has maverick spends. It doesn’t matter how perfect your procurement processes or how wide your supplier’s assortment seam to be. One can’t predict everything or let himself to waste time for minor expenses budgeting. So employee decides that some level of spends are small/accidental/maverick, makes his/her own decision to buy and put the spend into appropriate accounting column. Depending on the scale of the company, it may have millions of such spends.
The maverick spends are the purchases which are made from the supplier other than approved by the company. In other words – the purchases made outside of the company’s procurement procedures.
Maverick spends cause a wide range of problems. Let’s discuss three groups of such issues – financial, time costs, and psychological.
Financial effect is the one which is easy to count. Usually, each maverick spend is not big – so an employee doesn’t waste his or her time to find the best price or negotiate. However, in some companies, such spends can make up millions of euros. I.e., even if an employee spends only 10% above the best possible price for his/her maverick purchase, during a year, his/her company will lose a significant sum.
One more financial problem which rises in such a situation is penalties. A company can lose its discounts and other benefits it receives from the main suppliers’ contracts because for example contract quotas will not be achieved.
Time costs – among others, it is time the financial department has to spend on accounting the purchases which were made without following the usual procedure. While collecting the information about the purchase which was made not from the confirmed suppliers and not under current contracts, an accountant wastes his/her and responsible employee’s time.
Even more, company managers often have to carry out a reverse investigation if they want to control their department’s performance and validity of spends.
Though psychological maverick spends’ effect is harder to evaluate it harms not less than financial. If employees have permission for maverick spends, they feel less control and more freedom in the limits of “other spends” budget. So with high probability, they will not put much efforts to negotiate for the best price and other purchase conditions.
Besides, maverick spends may harm relations with the main suppliers, and procurement people will have to work on improving the situation.
What to do?
First of all, let’s admit that maverick spends are not the problem but deeper problem’s symptom. If a company wants to minimize such spends, it has to identify the roots of the problem. The cause of maverick spends may lay in people, process or technology involved.
Maybe employees are not informed and educated good enough about approved procedures, current contracts, and their conditions. Perhaps the contracts don’t meet their needs. In this case, the solution is appropriate inside communication. Every employee involved has to know not only about the contracts. He or she has to be aware of the sanctions which can be expected by the company in case the contract conditions would be broken, and all the other negative effects.
On the other hand, the procurement department should monitor the feedback from its inside customers and react to it quickly and appropriately.
Another possible (and widespread) reason for maverick spends – a hidden confrontation between production and procurement departments. Quite often, these two divisions feel like “we and them” not “we.” Such position is destructive and harmful not only for the atmosphere and microclimate of a company but it can cause “minor sabotage” in the form of maverick spends. And again, smooth inside communication along with team spirit building, should not be forgotten.
Take a critical look at a company’s procurement procedure. Isn’t it too long? Isn’t the improvement process too complicated and too formal? How easy can employees access information about suppliers and their goods?
Next step – you have to make buying from confirmed suppliers easy. Consider automation and usage of tools such as e-procurement systems. Besides other advantages, they can be accessed and used through a smartphone or any other authorized device from any place your employees work.
If you already use some systems and e-tools, evaluate if they can support an efficient procurement process.
When we speak about procurement process optimization ERP systems often are not the best choice. They usually are complicated, requires personnel training, and they are expensive if you need licenses for everybody involved in procurement.
Old school tools like email and Excel are not perfect in means of information structuration, control, integration with accounting programs and functionality.
One more solution – procurement E-Systems which are tailored to make corporate buying simple, secure, and efficient. Such procurement platforms give authorized employees Amazon-like buying experience. Also, company managers receive the tool for control, which allows them to see all information in one place and from different angles. The platforms usually are integrated with accounting programs, so accountants can easily find the buyer, approvement of the purchase, its orders, and invoices.
Certainly, you are the experts in your businesses, and only you can decide what is the best solution in the exact situation of your company. In comments, please tell us, what are the most significant problems maverick spends cause for you? Moreover, what tools do you use to minimize them?